Chapter 4 Completing the Accounting Cyclt 163

Transcription

1 Chapter 4 Completing the Accounting Cyclt 163 The company's chart of accounts follows: 101 Cash 405 Commissions Earned 106 Accounts Receivable 612 Depreciation Expense Computer Equip. 124 Office Supplies 622 Salaries Expense 128 Prepaid Insurance 637 Insurance Expense 167 Computer Equipment 640 Rent Expense 168 Accumulated Depreciation Computer Equip. 650 Office Supplies Expense 209 Salaries Payable 684 Repairs Expense 301 J. Nozomi, Capital 688 Telephone Expense 302 J. Nozomi, Withdrawals 901 Income Summary I. Use the balance column format to set up each ledger account listed in its chart of accounts. 2. Prepare journal entries to record the transactions for April and post them to the ledger accounts. The company records prepaid and unearned items in balance sheet accounts. 3. Prepare an unadjusted trial balance as of April Use the following information to journalize and post adjusting entries for the month: a. Two-thirds of one month's insurance coverage has expired. b. At the end of the month, $700 of office supplies are still available. c. This month's depreciation on the computer equipment is $500. d. Employees earned $720 of unpaid and unrecorded salaries as of month-end. e. The company earned $3,050 of commissions that are not yet billed at month-end. S. Prepare the income statement and the statement of owner's equity for the month of April and the balance sheet at April 30, Prepare journal entries to close the temporary accounts and post these entries to the ledger. 7. Prepare a post-closing trial balance. Check (3) Unadj. trial balance totals. $74,000 (4a) Dr. Insurance Expense. $139 (5) Net income. $8,591; J. Nozomi. Capital (4/30/2009), $65,391: Total assets. $66.1 I I (7) P-C trial balance totals. $66.61 I The adjusted trial balance of Charon Repairs on December 31, 2009, follows CHARON REPAIRS Adjusted Trial Balance December 31, 2009 Account Title Debit Credit Cash $ Office supplies 1,300 Prepaid insurance 2,800 Equipment 50,000 Accumulated depreciation Equipment $ 5,000 Accounts payable 12,000 Wages payable 1,400 L Charon, Capital L Charon, Withdrawals 16,000 Repair fees earned Depreciation expense Equipment Wages expense 39,000 Insurance expense 800 Rent expense 13,000 Office supplies expense Utilities expense Totals $150,000 $150,000 Problem 4-3 A Preparing trial balances, closing entries, and financial statements C3 P2 P3 i ejccel mhhe com/wildfap19e

2 164 Chapter 4 Completing the Accounting Cycle 1 Check (I) Ending capital balance. $51.800; net income. $34,800 (2)P-C trial balance totals, $70,200 Problem 4-4A Preparing closing entries, financial statements, and ratios C3 Al P2 I. Prepare an income statement and a statement of owner's equity for the year and a classified balance sheet at December 31, There are no owner investments in Enter the adjusted trial balance in the first two columns of a six-column table. Use columns three and four for closing entry information and the last two columns for a post-closing trial balance. Insert an Income Summary account as the last item in the trial balance. 3. Enter closing entry information in the six-column table and prepare journal entries for it. Analysis Component 4. Assume for this part only that a. None of the $800 insurance expense had expired during the year. Instead, assume it is a prepayment of the next period's insurance protection. b. There are no earned and unpaid wages at the end of the year. (Hint: Reverse the $ wages payable accrual.) Describe the financial statement changes that would result from these two assumptions. The adjusted trial balance for Tamar Construction as of December 31, 2009, follows. TAMAR CONSTRUCTION Adjusted Trial Balance December 3 1, Cash $ Short-term investments 23, Supplies Prepaid insurance Equipment 45, Accumulated depreciation Equipment 173 Building Accumulated depreciation Building 183 Land 66, Accounts payable 203 Interest payable 208 Rent payable 210 Wages payable 213 Property taxes payable 233 Unearned professional fees 251 Long-term notes payable 301 E. Tamar, Capital 302 E. Tamar, Withdrawals 11, Professional fees earned 406 Rent earned 407 Dividends earned 409 Interest earned 606 Depreciation expense Building 11, Depreciation expense Equipment 6, Wages expense Interest expense 4, Insurance expense 8, Rent expense 10, Supplies expense 5, Postage expense 2, Property taxes expense 5, Repairs expense 6,200 $ 22,500 54, ,900 3,500 2, , , ,000 15, ,200 $ Totals Telephone Utilities expense expense $429, ,100

3 Chapter 4 Completing the Accounting Cycle 165 E. Tamar invested $7,000 cash in the business during year 2009 (the December 31, 2008, credit balance of the E. Tamar, Capital account was $124,700). Tamar Construction is required to make a $7,500 payment on its long-term notes payable during I. Prepare the income statement and the statement of owner's equity for the calendar year 2009 and the Check (I) Total assets (12/31 /20OT). classified balance sheet at December 31, $243,470; Net income. $23, Prepare the necessary closing entries at December 31, Use the information in thefinancialstatements to compute these ratios: (a) return on assets (total assets at December 31, 2008, was $200,000), (<>) debt ratio, (c) profit margin ratio (use total revenues as the denominator), and (d) current ratio. The following unadjusted trial balance is for Archer Construction Co. as of the end of its 2009 Problem fiscal 4-5A year. The June 30, 2008, credit balance of the owner's capital account was $55,800, and the owner Preparing a work sheet, adjusting invested $27,000 cash in the company during the 2009 fiscal year. and closing entries, and financial lusaieay',* a nu Edit! limitfamwttnulfdatewindowhilp statements * tuning* lur II C3 PI P2 i ARCHER CONSTRUCTION CO. Unadjusted Trial Balance No. Account Title June 30, 2009 Debit Credit 101 Cash $ 17, Supplies 7, Prepaid insurance 5, Equipment 149, Accumulated depreciation Equipment $ 25, " Accounts payable 5, Interest payable j 208 Rent payable 210 Wages payable 213 Property taxes payable Long-term notes payable 20, G. Archer, Capital 82,800 j 302 G. Archer, Withdrawals 31, Construction fees earned 141, Depreciation expense Equipment Wages expense 40, Interest expense 2, Insurance expense Rent expense 11, Supplies expense o Property taxes expense 4, Repairs expense 2, Utilities expense 3,300 Totals $ 274,500 $ 274,500 ) Erg I. Prepare a 10-column work sheet for fiscal year 2009, starting with the unadjusted trial balance and including adjustments based on these additional facts. a. The supplies available at the end of fiscal year 2009 had a cost of $2,520. b. The cost of expired insurance for the fiscal year is $3,465. e. Annual depreciation on equipment is $8,300. d. The June utilities expense of $560 is not included in the unadjusted trial balance because the bill arrived after the trial balance was prepared. The $560 amount owed needs to be recorded. e. The company's employees have earned $1,900 of accrued wages at fiscal year-end. f. The rent expense incurred and not yet paid or recorded atfiscalyear-end is $500. g. Additional property taxes of $700 have been assessed for this fiscal year but have not been paid or recorded in the accounts.

4 166 Chapter 4 Completing the Accounting Cycle 1 Check (3) Total assets. $ ; Current liabilities. $13,560; Net income, $56,595 Problem 4-6A A Preparing adjusting, reversing, and next period entries P4 h. The long-term note payable bears interest at 12% per year. The unadjusted Interest Expense account equals the amount paid for the first 11 months of the 2009 fiscal year. The $200 accrued interest for June has not yet been paid or recorded. (Note that the company is required to make a $4,500 payment toward the note payable during the 2010 fiscal year.) Use the work sheet to enter the adjusting and closing entries; then journalize them. Prepare the income statement and the statement of owner's equity for the year ended June 30 and the classified balance sheet at June 30, Analysis Component 4. Analyze the following separate errors and describe how each would affect the 10-column work sheet. Explain whether the error is likely to be discovered in completing the work sheet and. if not, the effect of the error on the financial statements. a. Assume that the adjustment for supplies used consisted of a credit to Supplies for $2,520 and a debit for $2,520 to Supplies Expense. to. When the adjusted trial balance in the work sheet is completed, assume that the $17,000 Cash balance is incorrectly entered in the Credit column. The following six-column table for Hunter Golf Range includes the unadjusted trial balance as of December 31, HUNTER GOLF RANGE December 3 1, 2009 Unadjusted Adjusted Accoi int Title Trial Balance Adjustments Trial Balance Dr. Cr. Cr. Cash $ Accounts receivable 0 Supplies Equipment 102,000 Accumulated depreciation Equipment $ 19,584 Interest payable 0 Salaries payable 0 Unearned member fees 10,770 Notes payable 57,000 A. J. Hunter, Capital 28,893 A. J. Hunter, Withdrawals 15,000 Member fees earned 40,800 Depreciation expense Equipment 0 Salaries expense 21,542 Interest expense 4,275 Supplies expense 0 I. Complete Totals the six-column $157,047 table $157,047 by entering adjustments that reflect the following informati a. As of December , employees had earned $689 of unpaid and unrecorded salaries. The next payday is January 4, at which time $1,226 of salaries will be paid. b. The cost of supplies still available at December 31, is $2,076. c. The notes payable requires an interest payment to be made every three months. The amount of unrecorded accrued interest at December is $1,425. The next interest payment, at an amount of $1,710. is due on January 15, d. Analysis of the unearned member fees account shows $4,308 remaining unearned at December

5 Chapter 4 Completing the Accounting Cycle e. In addition to the member fees included in the revenue account balance, the company has earned another $6,936 in unrecorded fees that will be collected on January 31, The company is also expected to collect $8,000 on that same day for new fees earned in January check (I) Adjusted trial balance I. Depreciation expense for the year is $9,792. totals. $ Prepare journal entries for the adjustments entered in the six-column table for part Prepare journal entries toreversethe effects of the adjusting entries that involve accruals. 4. Prepare journal entries to record the cash payments and cash collections described for January. In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank. PROBLEM SET A. Current assets E. Current liabilities Problem 4-IB B. Long-term liabilities Determining balance sheet C. Equity classifications D. C3 Long-term investments F. Plant assets G. Intangible assets I. Rent receivable 2. Salaries payable 3. Income taxes payable 4. Owner, Capital 5. Office supplies 6. Interest payable 7. Rent revenue 8. Notes receivable (due in Land (used in operations) Depreciation expense Trucks Commissions earned 12. Interest receivable 13. Long-term investment in stock 14. Prepaid insurance 15. Machinery 16. Notes payable (due in 15 years) 17. Copyrights 18. Current portion of long-term note payable 19. Accumulated depreciation Trucks 20. Office equipment On July 1, 2009, Carl Park created a new self-storage business. Safe Storage Co. The following transactions occurred during the company'sfirstmonth. Applying the accounting cycle Problem 4-2B July 1 Park invested $34,000 cash and buildings worth $175,000 in the company. Cl C2 P2 P3 ^ 2 The company rented equipment by paying $ 1,500 cash for thefirstmonth's (July) rent. 5 The company purchased $1,300 of office supplies for cash. 10 The company paid $3,600 cash for the premium on a 12-month insurance policy. Coverage begins on July The company paid an employee $1,280 cash for two weeks' salary earned. 24 The company collected $11,500 cash for storage fees from customers. 28 The company paid $1,320 cash for two weeks' salary earned by an employee. 29 The company paid $250 cash for minor repairs to a leaking roof. 30 The company paid $850 cash for this month's telephone bill. 31 Park 101 withdrew Cash $2,400 cash from the company 401 for Storage personal Fees use. Earned The company's 106 chart Accounts of accounts Receivable follows: 606 Depreciation Expense Buildings 124 Office Supplies 622 Salaries Expense 128 Prepaid Insurance 637 Insurance Expense 173 Buildings 640 Rent Expense 174 Accumulated Depreciation Buildings 650 Office Supplies Expense 209 Salaries Payable 684 Repairs Expense 301 C. Park. Capital 688 Telephone Expense 302 C. Park. Withdrawals 901 Income Summary I. Use the balance column format to set up each ledger account listed in its chart of accounts. 2. Prepare journal entries to record the transactions for July and post them to the ledger accounts. Record prepaid and unearned items in balance sheet accounts. B

6 168 Chapter 4 Completing the Accounting Cycle Check (3) Unadj. trial balance totals. 3* Prepare an unadjusted trial balance as of July 31. $220, Use the following information to journalize and post adjusting entries for the month: (4o) Dr. Insurance Expense, a. Two-thirds of one month's insurance coverage has expired. b. At the end of the month, $800 of office supplies are still available. c. This month's depreciation on the buildings is $1,750. d. An employee earned $570 of unpaid and unrecorded salary as of month-end. e. The company earned $2,350 of storage fees that are not yet billed at month-end. (5) Net income, $5,630; C. Park, Capital (7/31/2009). $212,230; Total assets. $212,800 (7)P-C trial balance totals, 5. Prepare the income statement and the statement of owner's equity for the month of July and the balance sheet at July 31, Prepare journal entries to close the temporary accounts and post these entries to the ledger. 7. Prepare a post-closing trial balance. Problem 4-3 B Preparing trial balances, closing entries, and financial statements C3 P2 P3 ^ Check (I) Ending capital balance, $38,600 (2)P-C trial balance totals. Goldsmith Company's adjusted trial balance on December 31, 2009, follows. GOLDSMITH COMPANY Adjusted Trial Balance December 3 1, 2009 No. Account Title Debit Credit 101 Cash $ 10, Store supplies 1, Prepaid insurance 2, Equipment 52, Accumulated depreciation Equipment $ 9, Accounts payable 17, Wages payable N. Goldsmith, Capital 33, N. Goldsmith, Withdrawals 16, Repair fees earned 91, Depreciation expense Equipment 8, Wages expense 41, Insurance expense 1, Rent expense 11, Store supplies expense 4, Utilities expense 3,000 Totals $152,200 $152,200 I. Prepare an income statement and a statement of owner's equity for the year and a classified balance sheet at December 31, There are no owner investments in Enter the adjusted trial balance in the first two columns of a six-column table. Use the middle two columns for closing entry information and the last two columns for a post-closing trial balance. Insert an Income Summary account (No. 901) as the last item in the trial balance. 3. Enter closing entry information in the six-column table and prepare journal entries for it. Analysis Component 4. Assume for this part only that a. None of the $1,000 insurance expense had expired during the year. Instead, assume it is a prepayment of the next period's insurance protection. b. There are no earned and unpaid wages at the end of the year. (Hint: Reverse the SI.300 wages payable accrual.) Describe thefinancialstatement changes that would result from these two assumptions.

7 The adjusted trial balance for Myra Co. as of December 31, 2009, follows. MYRA COMPANY Adjusted Trial Balance December 3 1, 2009 No. Account Title Debit Credit Chapter 4 Completing the Accounting Cycle 169 Problem 4-4B Preparing closing entries, financial statements, and ratios C3 Al P2 101 Cash $ 7, Short-term investments 23, Supplies 8, Prepaid insurance 8, Equipment 40,000 $ 20, Accumulated depreciation Equipment Building 177,000 59, Accumulated depreciation Building 17, Land 68,120 3, Accounts payable 3, Interest payable 2, Rent payable 1, Wages payable 7, Property taxes payable 64, Unearned professional fees 132, Long-term notes payable 104, S. Myra. Capital 18, S. Myra, Withdrawals , Professional fees earned 2, Rent earned 407 Dividends earned 409 Interest earned 606 Depreciation expense Building 12, Depreciation expense Equipment 6, Wages expense 27, Interest expense 3, Insurance expense 7, Rent expense II, Supplies expense 6, Postage expense 2,800 $438, Property taxes expense 3, Repairs expense 6,900 S. Myra invested $7,500 cash in the business during year 2009 (the December credit balance 688 Telephone expense 3,200 of the S. Myra, Capital account was $125,100). Myra Company is required to make a $6,000 payment on 690 Utilities expense 3,300 its long-term notes payable during Totals $438,100 I. Prepare the income statement and the statement of owner's equity for the calendar year 2009 and the Check Hi Total assets (12/31/20091 classified balance sheet at December 31, J : Net income Prepare the necessary closing entries at December Use the information in the financial statements to calculate these ratios: (a) return on assets (total assets at December were $200,000). (ft) debt ratio. (<) profit margin ratio (use total revenues as the denominator), and (</) current ratio.

8 170 Chapter 4 Completing the Accounting Cycle Problem 4-5B The following unadjusted trial balance is for Brawn Demolition Company as of the end of its April 30, Preparing a work sheet, adjusting 2009, fiscal year. The April 30, 2008, credit balance of the owner's capital account was $51,610, and the and closing entries, and financial owner invested $30,000 cash in the company during the 2009 fiscal year. statements i.i PI 1 I l i * " * ' '-»»» '» 1 4> [ D ga *ay i*e"!»»! BRAWN i < tuij»cj«- nj _, DEMOLITIONCOMPANY. -» / 11» W i - i Unadjusted Trial Balance _._ No. Account Title April Debit 1U1 uasn» I/.UUU Supplies Prepaid insurance 9,500 6, Equipment 140, Accumulated depreciation Equipment $ 22, Accounts payable 6, Interest payable 208 Rent payable 210 Wages payable 213 Property taxes payable Long-term notes payable 25, J. Brawn, Capital 81, J. Brawn, Withdrawals 25, Demolition fees earned 140, Depreciation expense Equipment Wages expense 48, Interest expense 2, Insurance expense Rent expense 15, Supplies expense Property taxes expense 4, Repairs expense 2, Utilities expense 3,000 Totals $ 274,610 $ 274,610 r<ak_ I. Prepare a 10-column work sheet for fiscal year 2009, starting with the unadjusted trial balance and including adjustments based on these additional facts. a. The supplies available at the end of fiscal year 2009 had a cost of $3,420. b. The cost of expired insurance for the fiscal year is $4,095. c. Annual depreciation on equipment is $ 11,000. d. The April utilities expense of $580 is not included in the unadjusted trial balance because the bill arrived after the trial balance was prepared. The $580 amount owed needs to be recorded. e. The company's employees have earned $1,500 of accrued wages at fiscal year-end. f. The rent expense incurred and not yet paid or recorded at fiscal year-end is $1,400. g. Additional property taxes of $500 have been assessed for this fiscal year but have not been paid or recorded in the accounts. h. The long-term note payable bears interest at 12% per year. The unadjusted Interest Expense account equals the amount paid for the first 11 months of the 2009 fiscal year. The $250 accrued interest for April has not yet been paid or recorded. (Note that the company is required to make a $5,000 payment toward the note payable during the 2010 fiscal year.) 2. Enter the adjusting and closing entry information in the work sheet; then journalize it. Check (3) Total assets, $130,285: J. Prepare the income statement and the statement of owner's equity for the year ended April 30 and current liabilities. $15,230; Net income. the classified balance sheet at April 30, $38,945 r Analysis Component 4. Analyze the following separate errors and describe how each would affect the 10-column work sheet. Explain whether the error is likely to be discovered in completing the work sheet and. if not. the effect of the error on thefinancialstatements.

9 Chapter 4 Completing the Accounting Cycle 171 a. Assume the adjustment for expiration of the insurance coverage consisted of a credit to Prepaid Insurance for $2,405 and a debit for $2,405 to Insurance Expense. b. When the adjusted trial balance in the work sheet is completed, assume that the $2,100 Repairs Expense account balance is extended to the Debit column of the balance sheet columns. The following six-column table for Oberst Co. includes the unadjusted trial balance as of December Problem 31, 4-6B A Preparing adjusting, reversing, and OBERSTCOMPANY December 3 1, 2009 next period entries P4 Unadjusted Adjusted Accoi int Title Trial Balance Adjustments Trial Balance Dr. Dr. Cash $ 18,500 Accounts receivable 0 Supplies 7,825 Machinery 188,700 Accumulated depreciation $ 36,230 Machinery 0 Interest payable 0 Salaries payable 19,924 Unearned rental fees 54,000 Notes payable 101,044 B. Oberst, Capital 75,480 B. Oberst, Withdrawals 27,750 Rental fees earned Depreciation expense Machinery 0 Salaries expense 39,853 $286,678 Interest expense 4,050 Supplies expense 0 I. Totals Complete the six-column table by $286,678 entering adjustments that reflect the following information: a. As of December 31, 2009, employees had earned $1,275 of unpaid and unrecorded wages. The next payday is January 4, at which time $2,269 in wages will be paid. b. The cost of supplies still available at December 31, 2009, is $3,842. c. The notes payable requires an interest payment to be made every three months. The amount of unrecorded accrued interest at December 31, 2009, is $1,350. The next interest payment, at an amount of $1,620, is due on January 15, d. Analysis of the unearned rental fees shows that $7,969 remains unearned at December 31, e. In addition to the machinery rental fees included in the revenue account balance, the company has earned another $12,831 in unrecorded fees that will be collected on January 31, The company is also expected to collect $8,000 on that same day for new fees earned in January 2010.,-.,.. >o u * ' Check (I) Ad usted trial balance f. Depreciation expense for the year is $18,115. totals. $320, Prepare journal entries for the adjustments entered in the six-column table for part Prepare journal entries to reverse the effects of the adjusting entries that involve accruals. 4. Prepare journal entries to record the cash payments and cash collections described for January.

10 172 Chapter 4 Completing the Accounting Cycle SERIAL PROBLEM Success Systems P2 P3 (This serial problem began in Chapter I and continues through most of the book. If previous ch segments were not completed, the serial problem can begin at this point. It is helpful, but not ne to use the Working Papers that accompany the book.) SP 4 The December 31, 2009, adjusted trial balance of Success Systems (reflecting its from October through December of 2009) follows. 101 Cash * 58,1*0 106 Accounts receivable Computer supplies Prepaid insurance 1.6*5 131 Prepaid rent Office equipment Accumulated depreciation Office equipment 167 Computer equipment 20, Accumulated depreciation Computer equipment 201 Accounts payable 210 Wages payable 236 Unearned computer services revenue 301 A. Lopez, Capital 302 A. Lopez, Withdrawals 7, Computer services revenue 612 Depreciation expense Office equipment Depreciation expense Computer equipment 1, Wages expense 3, Insurance expense Rent expense 2, Computer supplies expense 3, Advertising expense 2, Mileage expense Miscelaneous expenses 2S0 684 Repairs expense Computer 1,305 1 Check Post-dosing trial balance 901 Income summary P ost m e necessary closing entries for Success Systems. totals, $94, Prepare a post-closing Totals trial balance as of December 31, $119,034 S BEYOND THE NUMBERS REPORTING IN ACTION Cl P2 '.BEST' A ( s"uv T BTN 4- Refer to Best Buy's financial statements in Appendix A to answer the following. I. For thefiscalyear ended March what amount is credited to Income Summary to summarize its revenues earned? 2. For the fiscal year ended March what amount is debited to Income Summary to summarize its expenses incurred?